M.Y.EQBAL,J. - (1.) BY these reference under Section 256(1) of the Income Tax Act, the following question has been referred to this Court for opinion: (1) Whether on the facts and in the circumstances of the case, the Income -tax Appellate Tribunal was right in law in holding that the interest income on FDR with Bank and on deposit with IDBI is part of the profit and gains derived from an industrial undertaking attracts Section 80I of the Income Tax Act? (2) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the interest on FDR with Bank and on deposit with IDBI is part of the profit and gains derived from an industrial undertaking to which Section 80I of the Income Tax Act, 1961 applies and thereby qualifying for deduction under Section 80I of the Income Tax Act, 1961?
(2.) THE facts of the case lie in a narrow compass : The Assessee is an industrial undertaking engaged in conversion of coal tar into hard pitch anthrance oil etc. being the priority industry. The assessee filed its Income Tax Return claiming deduction under Section 80I at Rs. 4,38,161/ - for the assessment year 1989 -90 and Rs. 4,32,042/ - for the assessment year 1990 -91 being 255 of prifit. The assessing officer by two separate assessment orders passed under Section 143(3) of the Income Tax Act allowed the deductions at Rs. 4,69,876 and Rs. 4,33,474/ - for assessment years 1989 -90 and 1990 -91 respectively. The Commissioner of Income Tax, Ranchi initiated revision proceedings under Section 263 of the Act and alleged that the said assessment orders passed by the assessing officer were erroneous and prejudicial to the interest of revenue because according to him the interest earned by the assessee for Rs. 2,15,432/ - (Rs. 58,766/ - interest on deposit in IDBI and Rs. 1,56,666/ - interest earned on Bank FDR's) for assessment year 1989 -90 and Rs. 1,71,116 - (Rs. 72,600/ - interest on deposit in IDBI and Rs. 98,516/ - interest earned on Bank FDR's) for the assessment year 1990 -91 should not have been considered for the purpose of allowance of deduction under Section 80I of the Income Tax Act, 1961 as according to him the said interest income did not form part of the profit and gains derived from the Industrial Undertaking. He accordingly directed the assessing officer to re -compute the deduction granted under Section 80I of the Act after excluding the interest income of Rs. 2,15,432/ - and Rs. 1,71,116/ - for the assessment year 1989 -90 and 1990 -91 respectively. The assessee on being aggrieved by and dissatisfied with the aforesaid revision order dated 11.03.1993 passed by C.I.T. under Section 263 preferred appeal before the Income Tax Appellate Tribunal, Patna Bench, Patna. The I.T.A.T. after haring both the sides and considering the various judgments cited by the parties vide its order dated 15.5.1997 held that the FDR in the bank and the deposit in the Investment A/c of the IDBI have a close nexus with the business of the assessee company which is an industrial undertaking and the assessing officer has rightly allowed deduction under Section 80I having taken the interest income as profit and gains of the assessee company. Accordingly, it was held that the order passed by the Commissioner of Income Tax under Section 263 of the Act was bad in law and therefore, was reversed and the appeal of the assessee was allowed.
(3.) MR . Binod Poddar, learned senior counsel appearing for the assessee submitted that Assessee -Unit is a small -scale industry engaged in the business of conversion of coal tar into hard pitch anthrance oil. The interest income earned by the assessee on fixed deposit in bank was the business income in view of the fact that the said amount of deposit in the bank was made cut of the accumulated cash profit and reserve. Learned Counsel submitted that similarly, the deposit made with IDBI was to avail deduction under Section 32AB of the Act which was the investment deposit account. There is condition in Section 32AB that to avail deduction under section, the assessee has to deposit an amount in an account maintained by him with the Development Bank and accordingly the assessee to claim deduction under the said section deposited the amount with the IDBI being the Industrial Development Bank of India. The interest income, which was generated from the fixed deposit in the bank and in IDBI, had direct nexus with the business of the assessee and was a business income to be included in the profit and gains of the assessee. Learned Counsel further submitted that income earned by the assessee on the deposit with bank and IDBI has a close nexus with business of the assessee company which is an industrial undertaking and therefore, it is submitted that the interest generated from these deposits are the profits and gains from the business of the assessee and, therefore, he is entitled for allowance under Section 80I of the Act.;